sovereign wealth funds primer - jp morgan (2008)

JPMorgan Research
22 May 2008

Sovereign Wealth Funds:
A Bottom-up Primer




www.morganmarkets.com JPMorgan Chase Bank, N.A., Singapore Branch
See page 97 for analyst certification and important disclosures, including investment banking relationships.
JPMorgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm
may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in
making their investment decision. The analysts listed above are employees of either J.P. Morgan Securities Singapore Private Limited or
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David G. Fernandez
AC

(65) 6882-2461

Bernhard Eschweiler
(65) 6882-2212


• Assets under management (AuM) of the over 50 Sovereign
Wealth Funds (SWFs) covered in this primer totaled between
US$3.0 to 3.7 trillion at the end of 2007
• While SWFs are large, many projections of their future growth are
overstated. The bottom-up approach used in this Primer yields a
range of growth scenarios. In a high inflow/high return scenario,
SWF assets achieve 20% annual growth, to reach US$9.3 trillion
AuM in 2012, which matches that cited by many commentators.
However, in a low inflow/low return scenario, total assets grow at
less than 11%, totaling US$5 trillion in 2012.
• The asset class that will see the largest impact will be alternatives,
with SWFs share in total alternatives to rise to at least 10% and
possibly as high as 17% by 2012.
• However, the impact of SWFs on bond and equity markets will
remain low. SWFs share in either market is in the low single-digits
and unlikely to change significantly. Moreover, their investments
are well diversified. This stands in contrast to central banks, which
are highly concentrated around the much smaller government bond
market.
• SWFs have become more active in primary and M&A transactions
and this trend is likely to continue.
• The creation of a broad set of “best practices” for SWFs and for
recipient countries is encouraging. But what is more important is
what SWFs are actually doing. We find that, in terms of disclosure

practices, investment approach and market behavior, SWFs are
more in line with best practices than political rhetoric suggests.




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2008
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Table of Contents
Sovereign Wealth Funds: A Bottom-up Primer 3
Introduction 3
Sources and purpose 4
Current size and future growth: A bottom-up approach 7
Asset allocation and market impact 12
Friend or enemy 17
Sovereign Wealth Funds: Summary tables 21
By Assets Under Management 21
By Country 22
Individual Fund Pages (in order of declining asset size)

Abu Dhabi Investment Authority (ADIA) 23
Government Pension Fund (Norway) 24
Government of Singapore Investment
Corporation (GIC) 26

Saudi Arabia Monetary Authority (SAMA) 28
Kuwait Investment Authority (KIA) 29
China Investment Corporation (CIC) 31
Hong Kong Exchange Fund 33
Temasek (Singapore) 35
Oil & Gas Fund (Russia) 37
Queensland Investment Corporation (QIC) 39
Qatar Investment Authority (QIA) 40
Future Fund (Australia) 41
Pension Reserve Fund (France) 43
Libyan Investment Authority (LIA) 45
Algeria Fonds de Régulation des Recettes (FRR) 46
Alaska Permanent Reserve Fund 47
Victorian Funds Management Corporation (VFMC) 49
Brunei Investment Authority 51
National Pension Reserve Fund (Ireland) 52
Khazanah Nasional BHD (Malaysia) 54
Kingdom Holding Company (Saudi Arabia) 55
National Oil Fund (Kazakhstan) 56
Korea Investment Corporation (KIC) 58
National Development Fund (Venezuela) 60
Alberta Heritage Fund 61
New Mexico Permanent Trust Funds 63
Economic and Social Stabilization Fund (Chile) 65
National Stabilization Fund (Taiwan) 66
Public Investment Fund (Saudi Arabia) 67
Dubai International Capital 68
Excess Crude Fund (Nigeria) 69
Reserve Fund for Oil (Angola) 69
Fund for Future Generations (Gabon) 69

National Hydrocarbon Revenue Fund (Mauritania) 69
New Zealand Superannuation Fund 70
Oil Stabilization Fund (Iran) 72
Mubadala (United Arab Emirates) 73
Development Fund for Iraq (DFI) 74
Pula Fund (Botswana) 75
State General Reserve Fund (Oman) 76
Istithmar World (United Arab Emirates) 77
Permanent Wyoming Mineral Trust Fund 78
Oil Stabilization Fund (Mexico) 80
Timor-Leste Petroleum Fund 81
State Oil Fund (Azerbaijan) 82
Heritage and Stabilization Fund (Trinidad & Tobago) 84
Oil Stabilization Fund (Colombia) 86
State Capital Investment Corporation (Vietnam) 87
Chile Pension Reserve Fund 89
Investment Fund for Macroeconomic
Stabilization (Venezuela) 90
Revenue Equalization Reserve Fund (Kiribati) 91
National Fund for Hydrocarbon Reserves (Mauritania) 92
Emirates Investment Authority 93
Investment Corp of Dubai 94
Countries contemplating SWFs & funds not included 95

A primer like this could not have been done without input from across the JPMorgan Global Research team. We thank, in
particular, Shyam Kakati and Ankita Mittal for their exhaustive research assistance and Fabio Akira, Joyce Chang, Bruce
Kasman, Jan Loeys, Nicola Mai, Michael Marrese, Grace Ng, Claudio Piron, Ben Ramsey, Neena Sapra, Anatoliy Shal,
Katherine Spector, and Graham Stock for their thoughtful suggestions and comments.

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Sovereign Wealth Funds: A Bottom-up
Primer
Introduction
Sovereign wealth funds (SWF) have become all the rage. They get more media
coverage than hedge funds and private equity firms combined, financial institutions
are courting them as never before, they are the favored topic of economic and
financial forums, and they have become a hot political topic. SWFs are accused of
having hidden agendas and yet are welcomed as saviors of Wall Street’s finest. Four
developments are behind the current focus on SWFs:
• The phenomenal rise of foreign reserves, chiefly among oil exporting countries
and some of the current account surplus countries in Asia;
• The establishment of new SWFs, such as China’s Investment Corporation (CIC)
or Russia’s Stabilization Fund;
• Some high-profile attempts by foreign government entities to purchase large
stakes in companies in the US and Europe that are viewed to be of strategic or
even national security importance;
• The recent multi-billion dollar investments by leading SWFs to help recapitalize
some of the world’s leading financial institutions.
Against this current background, it is important to remember that SWFs are nothing
new. Indeed, many of the established funds have been around for several decades. It
is the sheer size and growth of these funds, and the unease about their ultimate
intentions, that have raised a number of issues about their potential impact on
financial markets, competitiveness, corporate governance and even national security.
This Primer is divided into two parts: The first section is an essay that provides some
background to SWFs and analyzes their potential market impact and the related

political debate. The second section provides detailed descriptions of each fund
including their background, objectives, size, funding sources, governance,
institutional structure and investment approach. The following is a summary of the
key findings.
• Although the label “SWF” is used like a homogeneous term, there are huge
differences between the more than fifty funds in terms of purpose, size, source of
funding, structure, transparency and asset allocation.
• SWF assets are highly concentrated, with the top ten funds accounting for 80% of
total assets. About two thirds of SWFs are commodity based.
• With more than USD3 trillion in total assets, SWFs have become an important
investor group, bigger than hedge funds and private equity combined.
• SWFs will undoubtedly grow further, but growth projections can easily be
overstated. SWF growth is the inevitable outcome of the secular rise in oil prices
and Asian surplus savings. But how these forces play out going forward needs to
be analyzed on a country-by-country basis, just like the return that each SWF is
likely to generate in the future. The bottom-up analysis used in this Primer shows
Bernhard Eschweiler
(65) 6882-2212




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David G. Fernandez
(65) 6882-2461

shows that SWF assets are unlikely to surge into double-digit trillion dollar
figures over the next five years.
• Still, SWFs are likely to double in the next five years, raising questions about
their potential impact on the relative pricing between bonds and equities. Such

concerns seem overdone. SWFs’ share in either market is too small and unlikely
to change significantly. Moreover, their investments are well diversified. This
stands in contrast to the central banks, which are highly concentrated around the
much smaller government bond market.
• SWFs have become more active in primary and M&A transactions and this trend
is likely to continue. Political issues aside, this is not bad news since SWFs are
likely to be stable providers of long-term funding.
• The largest growth and asset allocation impact will probably be in alternative
investments. Already, some SWFs have large exposures to alternatives,
especially private equity, and more will join, which is likely to make alternatives
the biggest growth area for SWFs.
• Given their absolute size and relatively limited resources, efficiency is a
legitimate concern. Not surprisingly, the majority of SWFs use external
managers to fill the skill gap and diversify investment risks.
• Financial market gains from SWF growth, however, seem unlikely to ease
political concerns. Despite some acrimony, progress on “best practices” for SWFs
and for recipient countries is encouraging, with formal proposals to be put
forward later this year. And even though some key countries may resist the IMF-
led effort on best practices for SWFs, their actual actions (disclosure practices,
investment approach and market behavior) are more in line with best practices
than the rhetoric suggests.
Sources and purpose
SWFs are broadly defined as special government asset management vehicles which
invest public funds in a wide range of financial instruments. Unlike central banks,
which focus more on liquidity and safe-keeping of foreign reserves, most SWFs have
the mandate to enhance returns and are allowed to invest in riskier asset classes,
including equity and alternative assets, such as private equity, property, hedge funds
and commodities.
It is not always easy to differentiate between “pure” SWFs and other forms of public
funds, such as conventional public-sector pension funds or state-owned enterprises

(SOE). For example, it is not entirely clear why Norway’s Government Pension
Fund and Australia’s Future Fund are usually classified as SWFs, while the Stichting
Pension Fund (ABP) in the Netherlands and the California Public Employees’
Retirement System (CalPERS) are viewed as conventional pension funds.
SWFs are usually distinguished by their funding sources and purpose. In terms of
funding, three types of sources stand out:
 Commodity sources are largely oil and gas related, although some funds are
also based on revenues from metals and minerals (e.g. Chile). Most commodity
revenues are generated either directly through state-owned companies or
commodity taxes. Commodity revenues are viewed as “real wealth” as they
typically have no corresponding liability on the government’s balance sheet.
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 Fiscal sources can come from fiscal surpluses, proceeds from property sales and
privatizations or transfers from the government’s main budget to a special
purpose vehicle. Most fiscal sources are “real wealth”, although some have
liabilities. China, for example, is funding the transfer of foreign reserves from
the central bank to CIC by issuing government bonds.
 Foreign reserves represent often “borrowed wealth” as the reserve build-up in
many countries stems from sterilized foreign exchange interventions, in which
case the central bank issues interest bearing liquidity notes to fund the
interventions and mop up the excess liquidity. However, part of the foreign
reserves may also represent “real wealth”, thanks to asset appreciation and the
accumulation of interest income. The share of foreign reserves managed by
SWFs is typically viewed as “excess” reserves as it exceeds the portion of

foreign reserves deemed necessary for the conduct of foreign exchange policy
and precautionary reasons.
The classification of SWFs based on their purpose usually can be broken down into
four types of funds:
 Revenue stabilization funds are designed to cushion the impact of volatile
commodity revenues on the government’s fiscal balance and the overall
economy.
 Future generation (savings) funds are meant to invest revenues or wealth over
longer time periods for future needs. The sources of these funds are typically
commodity based or fiscal. In some cases, these funds are earmarked for
particular purposes, such as covering future public pension liabilities.
 Holding funds manage their governments’ direct investments in companies.
These may be domestic state-owned enterprises and private companies as well as
private companies abroad. Holding funds typically support the government’s
overall development strategy.
 Generic sovereign wealth funds often cover one or several of the previous
three purposes, but their size tends to be so large that the main objective
becomes optimizing the overall risk-return profile of the existing wealth. These
funds often manage part of the “excess” foreign reserves.
The following table provides some typical examples of the four main fund purposes
and their funding sources.
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Table 1: Examples of SWF sources and purposes
Purposes/sources Commodity revenues Fiscal sources Foreign reserves
Revenue stabilization Russia: Reserve Fund
Kuwait: Reserve Fund
Mexico: Oil Stabilization
Fund

Future generations /
public pensions
Russia: National Prosperity
Fund
Kuwait: Future Generation
Fund
Norway: Government
Pension Fund
Australia: Future Fund
New Zealand: Super
Fund

Management of
government holdings
Mubadala
Saudi Arabia: Public
Investment Fund
Singapore: Temasek
Malaysia: Khazanah
Vietnam: State Capital
Investment Corporation

China: Bank holdings
managed by CIC
Wealth or risk/return
optimization
Abu Dhabi Investment
Authority (ADIA)
Brunei Investment Authority
(BIA)
Qatar Investment Authority
(QIA)

Singapore: Government
Investment Corporation
(GIC)
Singapore: Foreign reserves
managed by GIC
Korea: Foreign reserves
managed by KIC
China: Foreign reserves
managed by CIC
Source: JPMorgan

In reality, however, the current universe of SWFs cannot be neatly summarized in the
above matrix. Besides the already mentioned four main purposes, some SWFs serve
a number of other motives. For commodity-based economies, SWFs help diversify
the revenue base and shield the domestic non-commodity sector from the risk of
sharp currency revaluations, so called “Dutch disease”. SWFs also help enforce
fiscal discipline and transparency, especially where funding and spending is
governed by specific rules. This role is particularly important for newly emerging
commodity economies that historically lacked fiscal discipline and transparency. A

few countries use their SWFs as catalysts to promote the development of the
domestic financial sector. Finally, some countries use their SWFs to pursue strategic
interests by investing in specific sectors that are viewed important for the overall
economic development of the country, especially skills transfer.
SWFs differ in many other aspects besides objectives and funding sources.
• Ownership and governance: All SWFs belong to the public sector, but some
are directly owned by the government and others are statutory entities. All SWFs
have a board, but some are entirely government controlled, while others have
mixed representations from the government and private experts and a few are
even independent from the government yet answerable to the legislature (e.g.
Australia’s Future Fund).
• Disclosure: Standards vary between full transparency (e.g. Norway) and
absolute secrecy. However, disclosure is becoming more accepted as best
practice and some notoriously secretive funds have started to reveal information
about their fund size, performance and basic asset allocation. The more recently
launched funds also show a higher degree of transparency than some of the long
established funds.
• Institutional structure: The main difference is between SWFs that act as
separate entities with their own balance sheet (e.g. ADIA, Temasek) and those
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that act as agent for one or several public-sector entities (e.g. GIC, Korea
Investment Corporation (KIC)). In some cases, the central bank acts as the agent
that manages the assets of the SWF (e.g. Norway, Saudi Arabia Monetary
Authority (SAMA)).
• Investment types: The asset allocation depends partly on the purpose:
stabilization funds tend to invest in liquid and less risky instruments, while future
generation funds tend to invest in higher-yielding asset classes. In total, the
largest share of SWF assets are invested in public securities (bonds and stocks),
but the share of alternatives (private equity, property, hedge funds and
commodities) is rising. The majority of SWF assets are invested in foreign
markets, but there are notable exceptions of funds that invest partially or largely
in the domestic market (e.g. Temasek, Khazanah).
• Currency allocation: In theory, SWFs can choose their own currency allocation.
In practice, many SWFs are constraint by their country’s foreign exchange policy
regime. With many countries targeting the dollar in some shape or form, their
SWFs ability to diversify into other currencies is limited.
• Benchmarks: Most SWFs have benchmarks, but use them in different ways.
Some have overall portfolio benchmarks (index or total return), while others use
separate benchmarks for each asset class. The majority of benchmark indices are
based on market indices, but many are customized. In the past, most SWFs tried
to outperform their benchmark indices, but a number of funds are moving to
passive benchmark tracking, especially in equity. A few funds are also using
portable alpha strategies.
• Investment process: Depending on their size and resources, some funds perform
many activities internally and outsource only some operations (e.g. GIC). Others
outsource essentially all front and back office operations and focus entirely on the
strategic asset allocation, manager selection and basic control functions (e.g.

Australian Future Fund, NZ Super Fund).
Current size and future growth: A bottom-up approach
Part of the concern about SWFs relates to their growing size. Estimating the
aggregated size of all SWFs is not without difficulties. While most SWFs provide
timely updates of their total assets under management, a few of the largest funds
provide little if any information.
Using a broad definition of SWFs, but excluding conventional public pension funds
which are already paying benefits (such as ABP and CalPERS), there are currently
more than 50 funds in operation with total assets under management estimated to be
between USD3.0 and USD3.7 trillion (see table below and summary tables on pages
21/22). Of the total size, nearly 20% of the funds are also included in official foreign
reserves and should not be double counted when calculating the combined size of
official reserves and SWF assets. Furthermore, roughly 10% of SWF assets are held
in local domestic assets (often state enterprises) and should not be viewed as
international financial assets.
Bernhard Eschweiler
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Table 2: SWF assets*
USD billion % of total SWF
assets
Total SWF assets 2,998—3,737 100
Of which:
Top ten SWFs 2,367—3,034 79—81
Commodity funds 1,900—2,504 63—-67
East Asia 999—1,139 30—33

Middle East 1,168—1,730 39—46
Europe & Central Asia 637 17—21
Africa 82—114 ~3
Americas 114-119 3-4
Memo items
Official reserves** 7,155
Hedge funds and private equity 2,800
Private pension, insurance and mutual funds 74,900
Global financial assets 190,000
* Estimates are mostly based on 2007 year-end figures, but also include some 2007 mid-year figures as well as figures for early 2008.
** Official reserves including gold at market value as of December 2007.
Source: JPMorgan

SWF assets are highly concentrated:
• The top ten funds account for about 80% of all SWF assets
• The largest SWF, ADIA, accounts for about 20-to-25% of all SWF assets
• Roughly two thirds of all SWF assets are held by commodity exporting countries
• East Asia and the Middle East account for more than three quarters of all SWF
assets
Without doubt, SWFs are large players among the new financial power brokers.
Total SWF assets are larger than hedge fund and private equity assets combined and
account for about half the size of all official foreign reserves. Yet, they are still
relatively small compared to the overall investor and market universe. SWF assets
account for less than 2% of global financial assets and less than 5% of the assets of
all private pension, insurance and mutual funds.
While coming from a relatively small base in aggregate, SWFs will undoubtedly
grow and gain more significance. Consensus forecasts put the annual growth rate of
total SWF assets at about 20% for the next five to ten years. Coincidence or not, this
rate is about the same as that of official reserves over the last five years. As a
directional indication, this may be sufficient; especially as any forecast of SWF asset

growth is likely to have a large margin of error. Still, using past reserve growth as a
guide has substantial shortcomings. The rise in SWFs has much to do with the
macro drivers behind the surge in foreign reserves, in particular the large current
account imbalances between the US and the surplus economies in Asia and the oil
exporting countries (see chart). However, extrapolating past reserve growth forward
would imply that these current account imbalances not only persist, but will grow
further. This is questionable, especially in light of the current downturn in the US
economy.
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Figure 1: Current account balances (USD billion)
-1,000
-800
-600
-400
-200
0
200

400
600
800
1,000
1999 2000 2001 2002 2003 2004 2005 2006 2007
Oil exporters
Emerging Asia
US

Source: JPMorgan

A comprehensive, bottom-up, forward projection of SWF assets should be built on
scenarios around the following factors:
• Oil price
• FX policy of surplus countries
• Current account dynamics in the US and its main trade partners in Asia
• Allocation of new reserves or other surpluses to SWFs
• Establishment of new SWFs
• Rate of return
With a large number of SWFs residing in commodity exporting countries, the
outlook for commodity prices, especially oil, is critical for estimating future current
account inflows. Two basic scenarios emerge: first, oil demand continues to outstrip
supply due to rapid growth in emerging markets, resulting in oil prices ranging
between $100 and $125 per barrel over the next five years; second, recession in the
US and a global slow down leads to a substantial decline in demand, causing oil
prices to fall to a range of $50 to $70 per barrel. In the oil boom scenario, current
account surpluses of oil exporters could rise as much as 50%. In the oil decline
scenario, current account surpluses would probably drop 50% and for many countries
it could imply that there are few excess savings to be channeled into SWFs.
Bernhard Eschweiler

(65) 6882-2212




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Figure 2: Oil exporter current account balances and oil prices
0
100
200
300
400
500
600
700
800
900
0 102030405060708090100110120130
Current account balance (USD billion)
Oil price (USD/Barrel)
$50-70/b scenario
$100-125/b
scenario
Source: JPMorgan

For the surplus economies in Asia, key factors are the current account dynamic in the
US and their own FX policy. Two scenarios seem plausible: first, a relatively quick
recovery leaves the US current account deficit relatively unchanged at the 2007 level
of around 5% of GDP (this projection is also consistent with the higher oil price
scenario) and the Asian surplus countries do not let their currencies appreciate faster;

second, recession and a drop in oil prices squeeze the US current account deficit to
about 2% of GDP, while Asian countries allow their currencies to appreciate faster.
In the first scenario, Asian current account surpluses are likely to remain broadly
unchanged. In the second scenario, Asian current account surpluses would drop by
roughly 50% and may even disappear in some cases.
With foreign reserve holdings exceeding reserve adequacy requirements in most
countries that have SWFs, it is reasonable to assume that a larger share of any
incremental balance of payments surplus will be allocated to SWFs. However, it
would be misleading to apply a general formula or assume that central banks will
reduce reserves and shift those funds to SWFs. In the Middle East, for example,
most SWFs already get all surpluses, with official reserves staying at minimum
adequacy levels. In Russia, growth of the Stabilization Fund is directly linked to the
tax revenues from oil exports. In China, the decision to move reserves from the
central bank to CIC is completely discretionary, and how soon and how much will be
transferred next is likely to depend greatly on how well CIC performs.
A related issue is whether other countries will establish SWFs in coming years and,
thus, add to the total size of SWF assets. A look at the list of surplus economies
shows that most of them already have one or even several SWFs. However, a few
may join. For example, Brazil recently announced its intention to set up a fund,
though it appears that investments may be restricted to the financing of the
internationalization of Brazilian companies. In Japan, there is growing political
pressure to establish a SWF, but some potent forces are resisting such a move.
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Disagreement includes the purpose: should the fund primarily support the Japanese
financial market or invest abroad. There is also talk in India, Taiwan and Thailand
about launching new funds. Meanwhile, Saudi Arabia is considering plans to merge
its various funds into one super fund.
Lastly, in terms of forecasting rates of return, using historic returns of leading SWFs
(such as Singapore’s GIC and Temasek, and Norway) as benchmarks for all funds is
not representative. While total SWF assets are relatively balanced between fixed
income and equity and some residual exposure to alternatives, there are vast
differences on a fund-by-fund basis, which get compounded by the size differences.
In a bullish scenario, those funds with a high allocation to equity and alternatives are
likely to push average returns close to double digits. But the opposite is likely as
well, especially in the near term, which could result in lower, single-digit returns.
Summarizing the impact of these different factors on total SWF assets produces two
main scenarios: 1) low inflows and returns; 2) high inflows and returns. Given the
differences in size, funding and asset allocation, these scenarios should be applied to
each individual SWF and not the total of all SWF assets. In this analysis, inflow and
return scenarios have been projected for each fund based on its specific
circumstances and initial size estimates. Aggregating the results across all SWFs and
adding assets from potentially new funds produces two basic outcomes.
• In the low inflow/return scenario, new inflows over the next five years total about
USD1 trillion (which would be roughly half the inflows over the last five years)
and the average return is around 5%. Based on this and starting from the low end
of the initial size estimates, total SWF assets rise on average 11% per year to
reach USD5 trillion in 2012.
• In the high inflow/return scenario, new inflows are nearly 3 times larger than in
the low inflow/return scenario (or roughly 50% larger than over the last five
years) and average returns are close to 10%. Coming off a higher initial AuM
estimate, total SWF assets will rise by about 20% per year to come slightly above

USD9 trillion by 2012.

Table 3: SWF growth scenarios
AuM 2007
(USD tn)
Inflows 2008-12
(USD tn)
Average return
(%) 2008-12
AuM 2012
(USD tn)
CAGR (%)
2007-12
Low inflow/ return
scenario 3.0 1.0 5.4 5.0 10.9
High inflow/ return
scenario 3.7 2.8 9.7 9.3 20.0
Source: JPMorgan

Based on these calculations, the consensus growth forecast for SWF assets of 20%
per year is on the optimistic side of the likely scenarios. More realistic is probably a
growth rate in the mid teens, which would imply that total SWF assets roughly
double over the next 5 years to USD6-to-7 trillion.
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Figure 3: SWF asset projections (USD tn)
-
1
2
3
4
5
6
7
8
9
10
2007 2008 2009 2010 2011 2012
Low inflows and returns
High inflows and returns

Source: JPMorgan

Asset allocation and market impact
These estimates appear more modest compared to the double digit trillion dollar
figures often quoted in the market place, but are still large in absolute terms and raise
questions about SWFs’ potential market impact. The popular view is that the rise of
SWFs will have distorting market implications. First, SWFs are believed to increase
the overall demand for risky assets and with that drive down their risk premia.
Second, part of the growth in SWFs is seen to come from a reduction in central bank
reserves. This expected substitution effect is believed to reduce the demand for

government bonds and drive up bond yields. Furthermore, there is the concern that
SWFs may abandon their traditional passive approach and become more active as
both traders and shareholders.
The following analysis addresses some of these concerns by taking a closer look at
SWFs’ current and likely future asset allocation. In summary, the analysis suggests
that SWFs are unlikely to have a significant distorting impact on financial markets.
• First, even if SWF assets triple or quadruple over the next five-to-ten years, they
will remain relatively small compared to the financial universe, accounting for no
more than 3-4% of global financial assets.
• Second, while SWFs have the mandate to take more risk and target higher returns
than central banks, they remain public-sector institutions and are unlikely to turn
into hedge funds and private-equity firms that engage in speculative trading and
use extensive leverage. Indeed, most SWFs will probably behave more like large
institutional asset managers that have long-term horizons and broadly diversified
investment portfolios.
Analyzing SWFs’ investment approach is not without difficulties as only half of all
SWFs disclose their asset allocation. Still some basic estimates of the overall asset
allocation between fixed income (mostly bonds but also some cash), public equity
and alternatives are feasible. These show that essentially all SWFs are in fixed
income, of which the bulk is in government bonds and agencies. Some funds also
hold credit products, ranging from high-grade corporates, ABS and MBS to high-
yield and emerging market debt (both hard currency and local currency markets).
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Nearly three quarters of all SWFs are in public equity, which consist of mostly
OECD equity markets and some emerging markets. In some cases, there are large
individual stock holdings. Nearly half of all SWFs are in alternatives, with the bulk
in private equity, followed by property and hedge funds, but limited exposure to
commodities. In terms of total SWF assets, 35%-to-40% are in fixed income, 50%-
to-55% are in public equity and 8%-to-10% are in alternatives. These figures are
biased towards the bigger SWFs, which have larger holdings of public equity. The
average SWF has a higher fixed income allocation (more than 50%) and a lower
public equity allocation (about 40%).
Table 4: SWF current and future asset allocation
Fixed income Public equity Alternatives
% of all SWFs 100 73 46
Current
% of all SWF assets 35-40 50-55 8-10
% of all SWFs 100 80-100 60-80
Future
% of all SWF assets 20-30 55-60 15-20
US endowment funds (% of assets equally
weighted)
25 58 17
Source: JPMorgan

The stated intentions of most SWFs suggest that this broad asset allocation is likely
to change over the next five to ten years, with more funds moving into public equity
and, especially, alternatives. Role models are SWFs like Singapore’s GIC, which is
believed to have 30% in fixed income, 50% in public equity and 20% in alternatives,
and Norway’s Government Pension Fund, which recently increased its equity
allocation from 40% to 60% and announced that it will soon start investing in some

alternatives. But there are also role models outside the SWF spectrum, like the US
endowment funds, which over the last ten years successfully increased their
allocations to alternatives.
So, what impact will this have on each asset class? Intuitively, one would think that
this will be negative for bonds, positive for public equity and very positive for
alternatives. A closer look, however, suggests that such allocation shift may only
have meaningful implications for alternatives and little impact on the broader bond
and equity markets.
Fixed income
SWFs currently hold USD1.1-to-1.4 trillion in fixed-income assets (a small fraction
of that is in cash). This is about 1.8%-to-2.2% of the global debt market. Depending
on the degree to which SWFs reduce their fixed income allocations as well as the
growth in underlying SWF assets and debt markets, SWFs’ share in global fixed
income markets will vary between 1.2% and 3.0% by the year 2012. On average,
however, the share will be roughly the same in five years as it is now, namely around
2%. The relatively unchanged market share despite lower fixed-income allocations
reflects the expectation that SWF assets will grow faster than the global debt market.
JPMorgan Research
22 Ma
y
2008
Bernhard Eschweiler
(65) 6882-2212




14
Table 5: Share of SWF fixed-income assets in global debt market
2007 2012

35-40% fixed-income
allocation
20% fixed-income
allocation
30% fixed-income
allocation Average
Low AuM scenario 1.8% 1.2% 1.9% 1.6%
High AuM scenario 2.2% 2.0% 3.0% 2.5%
Average 2.0% 1.6% 2.4% 2.0%
Source: JPMorgan

With SWFs not expected to reduce their overall fixed-income market share, an
outright negative effect on fixed-income markets is unlikely. Furthermore, a
negative substitution effect is also unlikely as the majority of central banks will
probably not reduce their reserves and, thus, bond holdings. In the Middle East,
official reserves are already small as all surplus funds go into SWFs. For the large
reserve holders in Asia, which are also the largest holders of government bonds, it
seems more likely that additional reserves will be channeled into SWFs, but that
existing reserves stay in place. Indeed, an overall reduction in official reserves seems
only likely if balance of payments dynamics reverse and net inflows become net
outflows. But in such scenario SWF assets are unlikely to grow anyway.
In contrast to central banks which focus their investments on the much smaller
market of liquid government bonds, SWFs are likely to diversify their fixed income
portfolios. Corporate bonds, emerging market debt and mortgage-related securities
will probably form a growing part of many SWFs’ fixed income portfolios over time.
Thus, SWFs may not add much to the demand pressure on government bonds from
central banks, which would be a welcome relief.
Public equity
SWFs currently hold USD1.6-to-2.0 trillion in public equity. This is about 3.2%-to-
3.8% of the global equity market. Depending on the degree to which SWFs change

their equity allocations as well as the growth in underlying SWF assets and stock
markets, SWFs share in global equity markets will vary between 3.9% and 6.0% by
the year 2012. On average, SWFs’ share in global equity markets will probably be a
bit more than one percentage point higher in five years than it is now, which seems
too small an increase to have any significant impact on pricing. In essence, the total
exposure of SWFs to public equity is already very large. Especially most of the large
funds have very sizable equity portfolios and are unlikely to increase their share
further. Thus, smaller funds moving into stocks or increasing their equity portfolios
will not make a huge difference.
Table 6: Share of SWF public equity assets in global stock market
2007 2012
50-55% public
e
q
uit
y
allocation
55% public equity
allocation
60% public equity
allocation Average
Low AuM scenario 3.2% 3.9% 4.3% 4.1%
High AuM scenario 3.8% 5.5% 6.0% 5.7%
Average 3.5% 4.7% 5.1% 4.9%
Source: JPMorgan

JPMorgan Research
22 Ma
y
2008

David G. Fernandez
(65) 6882-2461



15
Having said that, individual funds will probably have more impact on single
transactions and stocks. This will be particularly visible in primary and M&A
transactions where SWFs will increasingly function as lead or anchor investor. A
few years ago, SWFs did essentially not participate in primary and M&A deals, but
activity picked up in 2006/07 and reached new highs in late 2007 and early 2008,
when a few SWFs invested more than USD40 billion in some of the world’s largest
financial institutions. However, it would be wrong to view this increased M&A
activity as distorting. To the opposite, SWFs act more as providers of stable long-
term risk capital.
Figure 4: SWF M&A volumes
0
10
20
30
40
50
60
70
2000 200 2004 2006 2008YTD
0.0%
0.5%
1.0%
1.5%
2.0%

2.5%
3.0%
3.5%
4.0%
USD billion
% of global M&A
Source: Dealogic and JPMorgan, includes USD43.3 of financial recapitalization deals in 2007/08

Table 7: Recent investments in major financial institutions by SWFs
Investor Target Date Deal type Size (USD bn)
ADIA Citigroup 27-Nov-07 Convertible 7.5
CIC Morgan Stanley 19-Dec-07 Convertible 5.0
UBS 10-Dec-07 Convertible 9.7
GIC
Citigroup 15-Jan-08 Convertible 6.8
Citigroup 15-Jan-08 Convertible 3.0
KIA
Merrill Lynch 15-Jan-08 Convertible 2.0
KIC Merrill Lynch 15-Jan-08 Convertible 2.0
QIA Credit Suisse 22-Feb-08 Common 0.5
Merrill Lynch 24-Dec-07 Common 4.4
Temasek
Merril Lynch 24-Dec-07 Option 0.6
Unknown ME SWF UBS 10-Dec-07 Convertible 1.8
Total 43.3
Source: JPMorgan

JPMorgan Research
22 Ma
y

2008
Bernhard Eschweiler
(65) 6882-2212




16
Alternatives
Given SWFs’ growing risk appetite and higher return targets, alternatives are likely
to experience the largest allocation increase. SWFs currently hold roughly USD270-
to-340 billion in alternatives. This is about 6.8%-to-7.5% of total alternatives. Of
that, at least half is private equity. Especially some of the Gulf funds have sizable
private equity portfolios. Hedge fund exposure has been smaller, but is on the rise.
SWFs have little commodities exposure, but several have significant property
holdings, often consisting of large direct investments. Depending on the degree to
which SWFs increase their allocation to alternatives as well as the growth in
underlying SWF assets and the alternative sector, SWFs’ share in total alternatives
will rise to at least 10% and possibly as high as 17% by the end of 2012. On
average, SWFs’ share in alternatives is likely to double over five years to about 13%.
Table 8: Share of SWF alternative assets in total alternative sector
2007 2012
8-10% alternative
allocation
15% alternative
allocation
20% alternative
allocation Average
Low AuM scenario 6.0% 10.4% 13.9% 12.1%
High AuM scenario 7.5% 12.5% 16.6% 14.5%

Average 6.7% 11.4% 15.2% 13.3%
Source: JPMorgan

The main beneficiaries of the increased allocation by SWFs to alternatives are set to
be private equity firms and hedge funds. These managers offer skills, resources and
expertise that would be difficult for most SWFs to develop on their own. Already,
several major SWFs have forged strategic relationships with some of the leading
hedge funds and private equity firms. These include investments by SWFs in the
general partnership of private equity firms and hedge funds, which give them better
performance participation.
The increased investments by SWFs will be welcome news for private equity and
hedge fund managers, as it will boost fees, but it is not clear whether this will have a
lasting impact on the direction of the underlying markets in which these funds
operate. True, more funding from SWFs will allow private equity firms and hedge
funds to operate on a somewhat larger scale, but their impact is more likely to be felt
in terms of individual transactions and trading activity rather than the overall market
direction. There is also talk that SWFs may provide private equity firms with debt
funding for LBO deals, replacing some of the bank financing. However, this would
require the very type of credit skills and expertise that SWFs are lacking.
It is similar unlikely that SWFs will have a large aggregated effect on the property
market, but they may drive up prices of particular developments. Least clear is what
impact SWFs will have on commodities. The oil producers have little reason to
invest in energy commodities (although a few Gulf funds are investing in exploration
and refining projects in other parts of the world), but may be interested in metals,
especially precious, and soft commodities. For the large funds in Asia, energy
commodities may be most interesting. Despite much speculation, however, very
little has happened so far, which may suggest that many SWFs view commodities as
too speculative and current prices as too high. So, the overall impact on commodity
markets may be negligible, but that would not rule out some Gulf funds going long
agriculture indices and some Asian funds overweighting energy indices.

JPMorgan Research
22 Ma
y
2008
David G. Fernandez
(65) 6882-2461



17
More broadly, a big beneficiary of the SWF growth will be the asset management
industry (both traditional portfolio manager as well as alternative managers).
Already, roughly 60% of SWFs use external managers, with about half of SWF
assets managed externally. Most of the external mandates are equity and
alternatives. Going forward, the share of externally managed SWF assets is set to
rise as more funds move into equity and alternatives. But the biggest boost will
come from the underlying asset growth.
The high degree of outsourcing is not only good news for the asset management
industry, but probably has also a stabilizing market impact. SWFs are not immune to
making mistakes, but they diversify these risks by outsourcing large pools of their
assets to many professional managers.
Summarizing, it seems reasonable to conclude that the rise of SWFs, although
significant, is unlikely to have material distorting effects on overall markets. This is
because SWFs will remain small relative to the market universe in which they
operate. Second, they will diversify their investments across a wider range of assets
and managers. This stands in contrast to central banks, which focus mostly on the
liquid and low risk markets.
To the opposite, one could argue that SWFs may have a stabilizing effect on markets.
They are long-term investors with stable funding sources that are unlikely to be
withdrawn quickly (low redemption risk). Second, as public-sector entities, SWFs

are unlikely to engage in speculative activities and use much if any leverage.
Instead, risk management will be high on their agenda and be reflected in well
diversified portfolios. Combined with their higher return targets, this means that
SWFs are likely to be stable providers of long-term risk capital. Indeed, SWFs have
not been seen following the mainstream and compounding volatility in the current
market crisis.
Friend or enemy
Even though it appears that SWFs are a positive and stabilizing for markets thus far,
their public policy discussion is currently dominated by concerns that their activities
need to be restricted or more closely regulated. In the US, there is talk of barring
SWFs from having voting rights in their investments or of making tax exemptions
contingent on SWFs’ compliance with a code of conduct.
These concerns focus on the motives and operating style of SWFs. From recipient
countries, three main issues have emerged behind this unease:
• The acquisition of private companies by foreign government entities raises
questions about the impact of those investments on the recipient country's
competitiveness and efficiency. Indeed, some industrialized countries question
why they should privatize state-owned enterprises only to see them snapped up
by foreign government entities.
• Since SWFs are generally not subject to the disclosure standards that apply to
regulated investors, the concern is that this lack of transparency leaves little
insight of their motives and portfolios.
• SWFs may not make investments with the commercial intention of maximizing
returns, but rather pursue the political or foreign policy interests of their
JPMorgan Research
22 Ma
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2008
Bernhard Eschweiler
(65) 6882-2212

18
countries. This then raises national security issues such as giving foreign
government control or access to defense-related technologies.
For their part, SWFs have said they voluntarily restricted their investments choices to
avoid criticism, while others have forthrightly complained about being singled out
unfairly. One prominent SWF manager, for example, is quoted as saying, “the
consequences of imposing regulations on sovereign wealth funds will result in an
adverse impact on global capital flows these regulations will not solve or prevent
any future financial crises.'' Another high-profile SWF official said a code of conduct
for SWF would only “hurt feelings.”
At this stage, the focus is on efforts at the multilateral level to mitigate the concerns
raised by recipient countries, while assuring SWFs that they will not be subjected to
unwarranted regulations or scrutiny. In particular, the G-7 Finance Ministers,
spearheaded by the US, mandated the OECD to develop guidelines for recipient
countries, while the IMF focuses on best practices for SWFs.
As for recipient country guidelines, in April, the OECD published its report on
recipient guidelines. The OECD's approach is basically for recipient countries to
apply the same principles to investments from SWFs as they do to any investments
from foreign entities. In particular, the OECD draws on its guidelines (what they call
"investment instruments") whose key principles are non-discrimination (treat foreign
investors not less favorably than domestic investors) and transparency (make
restrictions on foreign investment clear and accessible). The OECD investment
instruments also call for progressive, unilateral liberalization, which means that
members commit to the gradual elimination of restrictions on capital movements,
without condition of reciprocity, and to not introducing new restrictions (known as
"standstill").

However, the key issue when it comes to recipient guidelines is how to deal with
national security concerns. On this score, the OECD adopts a very broad set of
principles, that boil down to each country determining when an investment by a
foreign entity should be deemed a national security concern and how that investment
should be dealt with. Specifically, each country has a right to determine what is
necessary to protect its national security (self-judging). As to the application of the
core OECD investment instrument of non-discrimination, if a country feels
application of this principle does not adequately safeguard its national security, then
any specific measures taken with respect to individual investments should be based
on the specific circumstances of the individual investment which pose a risk to
national security. Whether or not any single country is adhering to these principles
would be decided by the other recipient countries from a "peer review."
As for voluntary best practices for SWFs, in October, the IMF is expected to rollout
its recommendations at the time of the IMF-World Bank Annual Meetings. Already,
this March, the US, Abu Dhabi, and Singapore reached agreement on principles for
sovereign wealth investment that can be seen as a preview of what is to come in
October. On objectives, the agreement states that SWFs should formally say that
their investment decisions are based solely on commercial grounds, and not to
advance, directly or indirectly, geopolitical goals. On disclosure, SWFs should make
public not only their purpose and investment objectives, but also institutional
structure, and asset allocation, benchmarks, and historical rates of return.
JPMorgan Research
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2008
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(65) 6882-2461

19
As these efforts at the macro level, led by the OECD and the IMF, proceed, it is
useful to keep in mind the individual stories of the motivations and investment
practices of the SWFs to date. First, it should be recognized that the existence of
SWFs and their purpose are well justified. Development experts widely agree that
emerging economies with large commodity sectors are best off if they stabilize
volatile commodity revenues and spread the commodity wealth over several
generations rather than fueling a domestic investment and consumption bubble.
Concerning the surplus economies in Asia, especially China, the principle issue is
not SWFs, but their industrial, trade and currency policies that generate the surpluses.
These economies need to reform their domestic goods and financial markets and
liberalize their currencies. However, most experts agree that this should happen
gradually while SWFs are an efficient way to manage the excess savings in the
meantime for future generations and liabilities.
Second, although not all funds comply with the same standards, well ahead of any
best practices put forward by the US or the IMF, some basic best practices
concerning governance, transparency and accountability have emerged organically
among the SWFs. And increasingly, other SWFs are starting adopting them. For
example, most newly-launched SWFs are based on legislation that defines the basic
mandate of the fund, have a board of government representatives and independent
experts that decides on the basic investment policy and is answerable to the
legislature, and publish audited financials.
Examples of newly launched SWFs that comply with those standards include the
Australian Future Fund, Korea’s Investment Corporation, Russia’s Stabilization
Fund and the Chilean Pension Reserve Fund to name just a few. China has yet to
disclose what standards it will adopt, but the openness in which it conducted its
recent high profile investments and the way it tenders its mandates for external
managers suggest that transparency and accountability are high on the agenda.
Encouraging also are some of the recent changes among the long-established funds.
In Singapore, Temasek is morphing into a public corporation with audited financials

and the Government’s Investment Corporation reported at its 25th anniversary for the
first time on its long-term performance and basic asset allocation. In the Middle
East, the Kuwait Investment Authority reported last year for the first time on its asset
size and performance and the Qatar Investment Authority revealed its currency
allocation.
Lastly, while the tenor of the public policy debate focuses on ways that SWFs might
behave irresponsibly relative to other investors, it should be noted that SWFs have
not participated in any hostile takeover and the recent large-scale investments in
financial institutions have been done with a high degree of transparency. If at all, it is
not SWFs but large state-owned enterprises (SOE) and their foreign investment
ambitions that should be the focus of scrutiny. SWFs are not set up and have little
interest to actively manage the operations of the companies they invested in. SOEs,
on the other hand, have a high interest to get involved in the operations of the
companies they buy to integrate them in their own operations and make them part of
their overall business and development strategy.
To encourage more progress in these directions, industrialized countries are best
advised to engage SWFs and their governments, not villainize them. Trying to
address these concerns through capital flow restrictions is likely to fuel protectionist
forces and may even undermine current trade negotiations. Capital flow restrictions
JPMorgan Research
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2008
Bernhard Eschweiler
(65) 6882-2212




20

could also lead to distortions as they deprive companies in the industrialized
countries of long-term risk capital and undermine the development efforts in
emerging economies. Safeguarding national security with respect to investments
from sovereign wealth funds must be done in a way that preserves open markets and
avoids protectionist responses. SWFs, for their part, should recognize heightened
scrutiny of their activities is inevitable and that a transparent operating framework
addresses most of the concerns currently being raised.

JPMorgan Research
22 Ma
y
2008
David G. Fernandez
(65) 6882-2461



21
Sovereign Wealth Funds: Summary tables
By Assets Under Management (in declining order)
No Country Fund/institution name Inception Funding source AuM ($bn) Page no
1 United Arab Emirates Abu Dhabi Investment Authority (ADIA) 1976 Oil 500-1,000 23
2 Norway Government Pension Fund - Global 1990 Oil 373 24
3 Singapore Government of Singapore Investment Corporation (GIC) 1981 Fiscal/Reserves 200-330 26
4 Saudi Arabia Saudi Arabia Monetary Authority (SAMA) 1952 Oil 327 28
5 Kuwait Kuwait Investment Authority (KIA) 1960 Oil 213-250 29
6 China China Investment Corporation (CIC) 2007 Fiscal/Reserves 200 31
7 Hong Kong Hong Kong Exchange Fund 1935 Fiscal/Reserves 182 33
8 Singapore Temasek 1974 Fiscal 160 35
9 Russia Oil & Gas Fund 2004 Oil, Gas 157 37

10 Australia Queensland Investment Corporation (QIC) 1992 Fiscal 65 39
11 Qatar Qatar Investment Authority (QIA) 2000 Oil 40-60 40
12 Australia Future Fund 2006 Fiscal 55 41
13 France Pension Reserve Fund 2001 Fiscal 51 43
14 Libya Libyan Investment Authority (LIA) 1981 Oil 50 45
15 Algeria Fonds de Régulation des Recettes (FRR) 2000 Oil 44 46
16 United States Alaska Permanent Reserve Fund 1976 Oil 37 47
17 Australia Victorian Funds Management Corporation (VFMC) 1994 Fiscal 36 49
18 Brunei Brunei Investment Authority 1983 Oil 25-35 51
19 Ireland National Pension Reserve Fund 2001 Fiscal 31 52
20 Malaysia Khazanah Nasional BHD 1993 Fiscal 26 54
21 Saudi Arabia Kingdom Holding Company (KHC) 1980 Oil 25 55
22 Kazakhstan National Oil Fund 2000 Oil 23 56
23 South Korea Korea Investment Corporation (KIC) 2006 Fiscal/Reserves 20 58
24 Venezuela National Development Fund (Fonden) 2005 Oil/Reserves 15-20 60
25 Canada Alberta Heritage Fund 1976 Oil 17 61
26 United States New Mexico Permanent Trust Funds 1958 Fiscal 16 63
27 Chile Economic and Social Stabilization Fund (FESS) 1985 Copper 16 65
28 Taiwan National Stabilization Fund (NSF) 2000 Fiscal 15 66
29 Saudi Arabia Public Investment Fund (PTF) 1973 Fiscal 10-15 67
30 United Arab Emirates Dubai International Capital 2004 Fiscal 13 68
31 Nigeria Excess Crude Fund 2004 Oil 13 69
32 New Zealand New Zealand Superannuation Fund 2001 Fiscal 10 70
33 Iran Oil Stabilization Fund 2000 Oil 10 72
34 United Arab Emirates Mubadala 2002 Oil 10 73
35 Iraq Development Fund for Iraq (DFI) 2003 Oil 8 74
36 Botswana Pula Fund 1993 Diamonds 6 75
37 Oman State General Reserve Fund 1980 Oil, Gas 6 76
38 United Arab Emirates Istithmar World 2003 Fiscal 6 77
39 United States Permanent Wyoming Mineral Trust Fund 1974 Minerals 4 78

40 Mexico Oil Stabilization Fund 2000 Oil 2 80
41 East Timor Timor-Leste Petroleum Fund 2005 Oil 2 81
42 Azerbaijan State Oil Fund (SOFAZ) 1999 Oil 2 82
43 Trinidad & Tobago Heritage and Stabilization Fund 2007 Oil, Gas 2 84
44 Colombia Oil Stabilization Fund 1995 Oil 2 86
45 Vietnam State Capital Investment Corporation 2005 Fiscal 2 87
46 Chile Chile Pension Reserve Fund 2006 Copper 1.4 89
47 Venezuela Investment Fund for Macroeconomic Stabilization 1998 Oil, Gas 0.8 90
48 Kiribati Revenue Equalization Reserve Fund (RERF) 1956 Phosphates 0.6 91
49 Gabon Fund for Future Generations 1998 Oil 0.5 69
50 Mauritania National Fund for Hydrocarbon Reserves 2006 Oil, Gas 0.3 92
51 Angola Reserve Fund for Oil 2007 Oil n.a. 69
52 United Arab Emirates Emirates Investment Authority (EIA) 2007 Fiscal n.a. 93
53 United Arab Emirates Investment Corp of Dubai 2006 Oil n.a. 94
Total
2,998—3,737


JPMorgan Research
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2008
Bernhard Eschweiler
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22
By Country (in alphabetical order)

No Country Fund/institution name Inception Funding source AuM ($bn) Page no
1 Algeria Fonds de Régulation des Recettes (FRR) 2000 Oil 44 46
2 Angola Reserve Fund for Oil 2007 Oil n.a. 69
3 Australia Queensland Investment Corporation (QIC) 1992 Fiscal 65 39
4 Australia Future Fund 2006 Fiscal 55 41
5 Australia Victorian Funds Management Corporation (VFMC) 1994 Fiscal 36 49
6 Azerbaijan State Oil Fund (SOFAZ) 1999 Oil 2 82
7 Botswana Pula Fund 1993 Diamonds 6 75
8 Brunei Brunei Investment Authority 1983 Oil 25-35 51
9 Canada Alberta Heritage Fund 1976 Oil 17 61
10 Chile Economic and Social Stabilization Fund (FESS) 1985 Copper 16 65
11 Chile Chile Pension Reserve Fund 2006 Copper 1.4 89
12 China China Investment Corporation (CIC) 2007 Fiscal/Reserves 200 31
13 Colombia Oil Stabilization Fund 1995 Oil 2 86
14 East Timor Timor-Leste Petroleum Fund 2005 Oil 2 81
15 France Pension Reserve Fund 2001 Fiscal 51 43
16 Gabon Fund for Future Generations 1998 Oil 0.5 69
17 Hong Kong Hong Kong Exchange Fund 1935 Fiscal/Reserves 182 33
18 Iran Oil Stabilization Fund 2000 Oil 10 72
19 Iraq Development Fund for Iraq (DFI) 2003 Oil 8 74
20 Ireland National Pension Reserve Fund 2001 Fiscal 31 52
21 Kazakhstan National Oil Fund 2000 Oil 23 56
22 Kiribati Revenue Equalization Reserve Fund (RERF) 1956 Phosphates 0.6 91
23 Kuwait Kuwait Investment Authority (KIA) 1960 Oil 213-250 29
24 Libya Libyan Investment Authority (LIA) 1981 Oil 50 45
25 Malaysia Khazanah Nasional BHD 1993 Fiscal 26 54
26 Mauritania National Fund for Hydrocarbon Reserves 2006 Oil, Gas 0.3 92
27 Mexico Oil Stabilization Fund 2000 Oil 2 80
28 New Zealand New Zealand Superannuation Fund 2001 Fiscal 10 70
29 Nigeria Excess Crude Fund 2004 Oil 13 69

30 Norway Government Pension Fund - Global 1990 Oil 373 24
31 Oman State General Reserve Fund 1980 Oil, Gas 6 76
32 Qatar Qatar Investment Authority (QIA) 2000 Oil 40-60 40
33 Russia Oil & Gas Fund 2004 Oil, Gas 157 37
34 Saudi Arabia Saudi Arabia Monetary Authority (SAMA) 1952 Oil 327 28
35 Saudi Arabia Kingdom Holding Company (KHC) 1980 Oil 25 55
36 Saudi Arabia Public Investment Fund (PTF) 1973 Fiscal 10-15 67
37 Singapore Government of Singapore Investment Corporation (GIC) 1981 Fiscal/Reserves 200-330 26
38 Singapore Temasek 1974 Fiscal 160 35
39 South Korea Korea Investment Corporation (KIC) 2006 Fiscal/Reserves 20 58
40 Taiwan National Stabilization Fund (NSF) 2000 Fiscal 15 66
41 Trinidad & Tobago Heritage and Stabilization Fund 2007 Oil, Gas 2 84
42 United Arab Emirates Abu Dhabi Investment Authority (ADIA) 1976 Oil 500-1,000 23
43 United Arab Emirates Dubai International Capital 2004 Fiscal 13 68
44 United Arab Emirates Mubadala 2002 Oil 10 73
45 United Arab Emirates Istithmar World 2003 Fiscal 6 77
46 United Arab Emirates Emirates Investment Authority (EIA) 2007 Fiscal n.a. 93
47 United Arab Emirates Investment Corp of Dubai 2006 Oil n.a. 94
48 United States Alaska Permanent Reserve Fund 1976 Oil 37 47
49 United States New Mexico Permanent Trust Funds 1958 Fiscal 16 63
50 United States Permanent Wyoming Mineral Trust Fund 1974 Minerals 4 78
51 Venezuela Investment Fund for Macroeconomic Stabilization 1998 Oil, Gas 0.8 90
52 Venezuela National Development Fund (Fonden) 2005 Oil/Reserves 15-20 60
53 Vietnam State Capital Investment Corporation 2005 Fiscal 2 87


JPMorgan Research
22 Ma
y
2008

David G. Fernandez
(65) 6882-2461



23
United Arab
Emirates
Abu Dhabi Investment
Authority (ADIA)

Fund size:
$500-1,000bn

Website:


Major investments
Company (Country)
% of
Company
EFG Hermes (Egypt) 8.3
Apollo Management LP (USA) 9.0
Suez Cement Company (Egypt) 7.6
Toll Brothers (USA) 4.5
Banque de Tunisie et des
Emirats (Tunisia)

Citigroup (USA) 4.9

UAE economic indicators

05 06 07f
GDP ($bn) 133 163 190
Real GDP
(%oya)
8.2 9.4 7.7
CPI (%oya) 6.2 9.3 11.0
Current account
($bn)
24.3 35.9 41.7
% of GDP 18.3 22.0 21.6
FX reserves
($bn)
21.0 27.6 75.7
Source: IMF


Overview
History and objectives
The Abu Dhabi Investment Authority (ADIA) was set up and is owned by
the government of Abu Dhabi. It was established in 1976, making it the
first UAE investment company. It is responsible for investing the
government's oil revenues and assets in countries across the world. The
objective is to invest the Abu Dhabi government’s surpluses across various
asset classes, at limited risk.
Funding details
ADIA’s main funding source is from the financial surplus of oil exports.
Institutional structure
Ownership and governance

The fund is owned by the Government of Abu Dhabi and operates under
the Abu Dhabi Investment Council under which a number of state owned
enterprises are present, including the Abu Dhabi Investment Corporation
(ADIC). ADIC is jointly owned by Abu Dhabi Investment Council (98%)
and the National Bank of Abu Dhabi (2%). It was set up in 1977 as a joint
stock company and specializes in providing investment and corporate
finance services.
Management structure
Chairman of the Board of Directors: Khalifa Mohammed Al-Kindi
Board of Directors: Hareb Al Darmaki, Salem Rashed Al Mohannadi,
Serge L. Desjardins, Eissa Ghanem Mohammed Al Suwaidi.
Disclosure
ADIA has never disclosed its fund size, portfolio structure, or performance.
Investments and operations
Investment process
ADIA invests in all international markets – equities, fixed income, real
estate, private equity and other alternatives. Each asset class has its own
fund managers and in-house analysts covering it. Almost every asset class
is managed both internally and externally. Overall between 70% and 80%
of the organization’s assets are managed by external fund managers. It
traditionally invested in public equity and fixed income markets, and low-
profile transactions, but it has recently started investing in undervalued
banks and real estate companies, including $7.5bn in Citigroup, giving
ADIA 4.9% of the company’s shares.
ADIA also invests in the energy sector through the Abu Dhabi’s
International Petroleum Investment Corporation (IPIC), a joint venture with
the Abu Dhabi National Oil Company. IPIC's investment portfolio is
reported to be over US$8 billion with investments in Austria, Denmark,
Egypt, South Korea, Pakistan, and Spain.
JPMorgan Research

22 Ma
y
2008
Bernhard Eschweiler
(65) 6882-2212




24
Norway
Government Pension
Fund - Global

Fund size:
$373bn


Website:
ges-
bank.no/

Assets under management (GPF-Global)
(US$bn)
0
50
100
150
200
250

300
350
400
1999 2001 2003 2005 2007
Source: Norges Bank website

Norway economic indicators

06 07 08f
GDP ($bn) 350 446 487
Real GDP
(%oya)
2.5 3.5 3.4
CPI (%oya) 2.3 0.7 2.9
Current
account ($bn)
55.3 66.4 72.4
% of GDP 15.8 14.9 14.8
FX reserves
($bn)
56.8 60.8 65.0
Source: JPMorgan.
Note: GDP above refers to “total GDP” which includes
oil and gas production. The key measure for tracking
policy developments in Norway is “mainland GDP.”

Overview
History and objectives
Established in 2005, the Government Pension Fund is a continuation of the
former Petroleum Fund, which was established in 1990. The Fund
comprises of the Government Pension Fund – Global (GPF – Global,
previously the Government Petroleum Fund) and the Government Pension
Fund – Norway (GPF – Norway, previously the National Insurance Scheme
Fund). The purpose of the Government Pension Fund – Global is to support
government savings to fund public pension expenditures and to promote
long-term considerations in the application of government petroleum
revenues.
Funding details
The Government Pension Fund – Global has three sources of income: the
return on the Fund’s assets, the cash flow from petroleum activities that is
transferred from the central government budget, and net financial
transactions associated with petroleum activities. The return on the Pension
Fund - Norway is added to the fund’s capital, and there are currently no
transfers from this fund to the state budget.
The total fund size of the GPF – Global was US$373bn at the end of 2007.
The GPF – Norway had an additional US$20bn.
Institutional structure
Ownership and governance
The Norwegian Ministry of Finance owns and is responsible for the
management of the Fund. It sets the strategic asset allocation and
investment guidelines, but has delegated responsibility for the operational

management of the Government Pension Fund – Global to Norges Bank
Investment Management (NBIM) which is a separate part of the Norwegian
central bank (Norges Bank). Responsibility for the operational management
of the Government Pension Fund – Norway is delegated to
Folketrygdfondet, a government entity specifically designed to manage this
Fund.
Management structure
The NBIM has its own management headed by a CEO. Folketrygdfondet,
the government body responsible for managing the Government Pension
Fund – Norway, is headed by a Board of Directors.
Disclosures
Norges Bank reports results for the Government Pension Fund – Global on
a quarterly basis. The auditing of the Fund is assigned to the Office of the
Auditor General, which bases its audit on the work performed by the
Central Bank Audit.



JPMorgan Research
22 Ma
y
2008
David G. Fernandez
(65) 6882-2461



25
Portfolio performance (%)
(30)

(20)
(10)
0
10
20
30
40
'98 '99 '00 '01 '02 '03 '04 '05 '06 '07
Equities Bonds
Total
Source: Norges Bank website; estimated data


Investments and operations
Investment process
For the Government Pension Fund –Global, NBIM uses both internal and
external managers. At the end of 2007, the Fund had 25 external equity
managers and 22 external fixed income managers. The broad strategy and
framework determines the distribution of investments among various asset
classes, such as bonds and equities, and the distribution by country. The
management strategy for the investment portfolio has two main
components consisting of the long-term strategy, which is reflected in the
benchmark portfolio, and the active management of the Fund.
Investment objectives
The objective of the Fund is to generate high return subject to moderate
risk in order to contribute to safeguarding the basis of future welfare. The
Fund’s performance is measured relative to the Benchmark Portfolio.
Asset Allocation
The Ministry of Finance has defined a benchmark portfolio which consists
of specific equities and fixed income instruments. The GPF - Global is

invested in non-Norwegian financial instruments (bonds, equities, money
market instruments and derivatives), spread over 42 developed and
emerging equity markets and 31 fixed-income markets. In the past, the
broad asset allocation was 60% fixed income and 40% equities. In 2007, it
was decided to include a small-cap segment in the benchmark portfolio for
equities, and to increase the equity portion of the benchmark portfolio from
40% to 60%. Furthermore, the Fund is considering investing in some
alternative assets.
Strategic benchmark portfolio
Asset class Overall
strategic
benchmark
Europe Americas/A
frica
Asia/ Oceania
Fixed
income
40% 60% 35% 5%
Equities 60% 50% 35% 15%
Source: Norges Bank website



1
As of December 31, 2007; Source: NIBM report based on USD/NOK = 0.1851
JPMorgan Research
22 Ma
y
2008
Bernhard Eschweiler

(65) 6882-2212